Why The U.S. Government Pays Lockheed Martin Billions


Lockheed Martin is the top grossing defense
firm in the world, and the U.S. government supports that business to
the tune of over $37.7 billion. It surpasses its closest
competitors, Boeing and Raytheon, by nearly $20 billion in arms sales. These funds are granted by Congress
to provide equipment that enables the U.S. military to protect the
country at home and abroad. So why is Lockheed the
defense darling of the U.S. government? And how did it
beat out its competitors? One of the top priorities of
all administrations is the protection and safety of the American people. To ensure that, politicians work
with defense contractors to provide equipment to the military. This partnership provides a unique
opportunity for private corporations to execute the will of the government
and requires a delicate balance. President Eisenhower, in his farewell
address, coined the term military-industrial complex. And what he was talking about
was the close connection and collaboration between arms contractors
and uniformed military. In the councils of government, we
must guard against the acquisition of unwarranted influence, whether sought
or unsought, by the military-industrial complex. The political incentives of the U.S. Congress and the Department of Defense tended
to work together in a way that created enormous incentives
to increase military spending. For example, when there’s a major
weapons program like, say, the F-35, which is the current Air Force
combat aircraft, is being purchased, members of Congress might have questions
about this plane like is it performing well? Are we getting a good
deal for our money and so forth. They are reluctant to vote against it
because it means going up against potential jobs in their states. The Congress people in whose district
those companies are located and the Defense Department that then gets to
use the equipment that is purchased in this way. And Eisenhower believed
that that complex of the military, the industry and the government, the
Congress in particular, created a tendency for the United States
to overspend on national security. For most of the defense industry, their
biggest source of business is the Department of Defense. So they kind of
live and die with the defense budget as it increases, the revenue
increases, as it decreases, the revenue decreases. Waging an actual war is
a very expensive project. The 9/11 attacks in 2001 were a shock
to the American psyche, led to a substantial ramping up of U.S. military spending in the years after
2001, partly because of the immediate issue of terrorism and partly because
of the closely related but second order problems of the wars that
the counterterrorist program led to in Afghanistan and Iraq. The price tag gets huge. And so American defense spending has
grown radically since 2001 and remains very high. And Lockheed Martin is the
top-contracted company by the U.S. government. In 2018 alone,
the company sold $37.7 billion worth of contracts
to the U.S. government, making up 70%
of their net sales. The other 28% came from foreign military
sales and 2% came from commercial and other customers. Lockheed’s total revenue in 2018
was about $53 billion. By contrast, Lockheed’s next biggest
competitor, Boeing, was awarded about $23 billion from government
contracts the same year. So even though Boeing is a much
larger company with $101 billion in total revenue in 2018, only a small portion
of its business relies on defense contracts. Boeing might be a prominent example
where they do get a lot of revenue from the commercial business falling,
in fact, it’s about two thirds of its revenue from commercial
aviation, about a third from its defense business. Boeing mostly makes
planes for commercial airlines, but it also has a robust business
making military aircraft and other weapons. The next largest
competitor is Raytheon. Raytheon is a prominent defense firm
that offers services in everything from cybersecurity to
missile defense. 68% of Raytheon’s net sales
came from the U.S. government in 2018, which
means about $18.4 billion. They list
their principal U.S. government customer as the U.S. Department of Defense, as
does Lockheed Martin. However, before Lockheed Martin got
this very crucial customer, it struggled to define its identity. Glenn L. Martin opened his aviation
company on August 16th, 1912. The company went on to become one
of the earliest suppliers of the U.S. military, making aircraft for both
the army and the navy. They went on from success to success
through the twenties and the thirties pioneering all sorts of new
aircrafts, but particularly military airplanes. In 1961, the
second Glenn L. Martin Company merged with
the American Marietta Corporation. It was renamed the
Martin Marietta Corporation. The same year, Glenn Martin
launched his aviation business, the Lockheed brothers launched their
aviation business, the Alco Hydro Aeroplane Company, which was later
named Lockheed Aircraft Company. Lockheed, L-o-u-g-h-e-a-d, is
pronounced like Lockheed. People had a hard time pronouncing it
that led to the brothers legally changing the spelling of
their surname to Lockheed. Malcolm went on to start a
successful car hydraulic brake company, and Alan resigned after the company
was bought by Detroit Aircraft Corporation. But the company didn’t last
long and fell into receivership under the Title Insurance and Trust
Company of Los Angeles, officially killing Lockheed Aircraft Corp., which was a subsidiary. Its assets were sold off to Robert
Gross and other investors who went on to form a new Lockheed
Aircraft Corporation of Delaware. Lockheed Aircraft Corporation changed its
name in 1977 to Lockheed Corporation to demonstrate they offer
other services besides aviation. Those two companies, the Martin
Marietta Corporation and Lockheed Corporation, were two prominent competitors
in the defense marketplace. However, that marketplace has never
been completely independent of the government’s actions, just as President
Eisenhower had warned when he spoke of the
military-industrial complex. Military procurement had declined around 52%
from 1985 to 1997 in current dollar terms. Before 2001,
many people believed that national security had become a lot easier with
the end of the Cold War and that the United States could take what
was referred to at the time, a peace dividend. The much larger defensive
efforts that the United States had made during the Cold War when
we had to fight Soviet Union weren’t necessary anymore when the Soviet Union
collapsed and the Cold War ended. So defense budgets tended to decline. Leadership at the Department of Defense
inferred that the defense industry would have to shrink around 40% in
order to save the industry from collapsing amid declining demand
from the department. Officials encouraged companies to consolidate in
an effort to save each other. At the end of the Cold
War, there were concerns about whether the Pentagon budget, which was going to come down
about 10 to 25 percent or so was projected in real terms. Could that smaller budget sustain
the same number of contractors? And William Perry, the secretary of
defense, in the administration felt the answer was no. In fact, in
1993, the government asked specifically for less competition among
defense contractors. Look to your left.
Look to your right. One of your companies is not going to
be here in a couple of years. And then you also had
the infamous Last Supper. We think there are too many companies
in this business and we want to merge and combine with one another at
reduced costs to us, overhead costs at the corporate level. Norm Augustine
kind of engineered the whole series of mergers. Infamously or famously, Norm Augustine
who at the time was the head of Martin Marietta was at the
table with a bunch of other industry haters. And he was one of
the most aggressive executives taking that guidance and running with it. And he became CEO of the
combined Lockheed Martin and also consolidated and purchased lot of other
companies. Lockheed Martin absorbed large companies like Ford Aerospace
and Loral Corporation. Basically the big winner and that
consolidation after the Last Supper was Lockheed Martin. It was after that
that Lockheed aircraft and Martin Mary had emerged. In 1958, Lockheed Martin
proposed to Northrop Grumman and the government actually told them
not to do that. They cancelled that transaction. They said they wouldn’t approve it
and the idea was dropped. So that was that’s kind of, if
you will, the sort of the generally accepted end of the the
Last Supper consolidation era. By 2000, the industry had consolidated
into the marketplace we know today with Lockheed on top. So the way
the industry is structured now, the barriers to enter are huge. Unless they
brought up some of the existing companies, you’re only going to have
a couple of competitors for most things you might want to
do. Lockheed Martin now stretches into four business segments:
Aeronautics, Missiles and Fire Control, Rotary and Mission
Systems and space. It’s a company that has combined with
other companies over time to gain its current market position as the
largest company in the world. In 2019, Raytheon and United Technologies
announced intention to merge to have a better edge
on the defense industry. To protect their profits, companies like
Lockheed Martin also sell their aircraft to American allies when
cleared by the State Department. When the defense budget in the U.S. started to fall, a lot of companies
really amped up their work to sell products overseas. So depending on the company, that’s probably
now like 25 to 30 percent of their revenue may come
from international sales. That’s one way the government
controls the defense marketplace. Another way is through direct
negotiations with industry CEOs. In the 2017 fiscal year, the
then president, Barack Obama, proposed a budget of $582.7 billion for the
Department of Defense. The following year in 2018, President
Trump proposed a budget of $639.1 billion. For the fiscal year 2019,Trump
proposed a budget of $716 billion for national security, with $686
billion for the Department of Defense. And looking to the future,
Trump proposed a budget of $750 billion with $718.3 billion going to the Department of
Defense for the fiscal year 2020. The company was well positioned in the
Obama years as well because, you know, he actually spent significant money
in this decade, which includes most of the Obama two terms. We’ve spent a trillion more on the
Pentagon than in the prior decade, which was at the peak of
the Iraq and Afghan wars. President Barack Obama appointed Lockheed
CEO Marillyn Hewson to the president’s export council in
September of 2013. Marillyn Hewson from Lockheed Martin. Obviously, one of our greatest innovators
and one of those innovations is the F-35 fighter jet. It is the most advanced
fighter in the world. It’s stealth. You cannot see it. Is that correct? That’s correct. Better be correct. Right? A single F-35
can cost over $80 million and the government hasn’t always been happy with
the F-35’s performance and price. Then President-elect Donald Trump thought
the F-35’s program delays and high costs were bad for business. This one from the president-elect based
on the tremendous cost and cost overruns of the Lockheed Martin F-35, I’ve
asked Boeing to price out a comparable F-18 Super Hornet. This caused Lockheed Martin shares to
fall around 2% and sent Boeing shares up 0.5%. In January 2017, Trump commented on
the tension of his negotiation with Lockheed Martin. Look at
what’s happening with Lockheed. Number one, we’re cutting the price of
their planes by a lot, but they’re also expanding. And that’s going
to be a good thing. Ultimately, they’re going to
be better off. Hewson is actually in this very
interesting sweet spot where the defense budgets never been bigger
under any presidency. So that gives her company a lot of
leeway to snatch up a lot of those contracts. I don’t see any realistic
chance that there’s another company that’s going to exceed Lockheed Martin
in the next five years. Lockheed Martin will be delivering 478
F-35 aircraft to the U.S. government under their biggest deal yet,
a $34 billion contract with the Pentagon. In 2019, the U.S. government also approved the sale of 32
F-35 jets to Poland for around $6.5 billion so the company is poised
to be successful among allies as well. When you look at Lockheed’s diverse
portfolio and you pair that with a defense budget at a tune of
$700 billion, of course Lockheed is prime suited to pick up more government contracts
and to ride even more of a successful wave.

100 Replies to “Why The U.S. Government Pays Lockheed Martin Billions

  1. Lockheed Martin is the only company that manufactures UFO type tech which is why the government has to pay them such an astronomically high number. The reason most their money comes
    from the department of defense is because space and any sort of arial threat is dealt with through the DOD.

  2. That $37.7 Billion is money well spent as it brought down the price tags of the three F-35 variants to historic lows. The F-35A for example is now priced at $78 million a piece, cheaper than less capable 4th Generation aircrafts. The bulk buy of the Navies subs also brought the prices down. But I do find the overall government spendings on defense too excessive but since the economy so far is doing well ($22Trillion National Debt is another issue with several factors), modernization of the US military will serve well in the event the US finds itself in another conflict with a potential potent adversary such as say, China. We'll never know but it's better to be prepared than be sorry.

  3. If America didn’t have overwhelming power what do you think Russia and China would be up to. Don’t be naive. Just think Crimea but on a much bigger scale.

  4. FOR A COUNTRY THAT FORGOT THE PENTAGON HAS 21 TRILLION USD MISSING FROM ITS BOOKS MAKES AMERICA THE MOST CORRUPT COUNTRY IN HISTORY, AND IT'S CITIZENS THE MOST DUMBED DOWN.

  5. CNBC back at leftist propaganda.
    Military equipment is just 1/3 of Defense budget. The rest is personnel and welfare.
    And Pentagon is 17-19% of Federal budget.
    Our social programs are 1 TRILLION a year.

  6. What I don't understand is how American has OCEANS of money for the F-35 but does not have money for new A-10's which has decades of proven effectiveness…or better assault rifles to replace the inappropriate M-16/M-4 that has plagued all branches of the military since Vietnam, and better body armor for ground personnel. Seriously. Does ANYBODY have a logical and reasonable answer?

  7. When i get promised a jet with stealth capabilities it better be invisible.
    Technical stuff, to understand it you gotta know about spacefaring and geology or whatever.

  8. i agree that everything is super expensive…but just imagine the amount of money that goes to development and research…we're not talking about just simply building a plane we're talking about literally coming up with a new technology in the form of a plane…

  9. If you buy cheaper China Jets , and later go to war with China there is a good chance China will not sell you more jets and spare parts. DUH.

  10. the f35 is a crap plane outclassed outgunned by older planes like f15 eagle, even the tomcat is better, the old harrier way better can carry more fire power , land take off from rugged terrain something that f35 can not , the harrier is less complicated , the f35 is vunerable to hacking , like what scotty said in star trek the more plumbing you put the easier it is to block up the drain it was that movie where he sabotaged the excelsior , so who is America fighting these wars for you all know , also American infrastructures are in ruins flint anyone , water supply poisoned by fracking more misery caused by greed, installation of 5g for control grid which is harmful to peoples health but hey there is an agenda to push money no object but the people vital infrastructure who cares eh , one of Americas underground nuclear waste storage is an accident waiting to happen and if nuke plants become neglected well who cares 5g and death machines far more important good to know priorities are right I mean that in a sarcastic tone , killing people for profit hope you like your blood money and you politicians who accept donations from the military industrial complex , I have said enough

  11. Marilyn literally the most Powerful woman in the World. That's not even exaggeration. Bush family is related controlling everything since the early 1900's. The Secret people who control the U.S!

  12. They have better lobbyists that dish out better bribes of cause.
    America want to get rid of China, because China executed it's corrupt politicians.
    America just give theirs another bribe or promotion and smothers corruption in the courts.

  13. Wasteful military spending is why a lot of people can't afford healthcare, can't afford retirement and local governments struggle with paying for schools and local maintenance of services.

  14. Really wish Trump made an offer to Northrop to make the YF 23 'black widow 2' stealth jet. Most people are unaware this was the main competition for Lockheeds f22 stealth jet. The YF23 was obviously the superior jet, and was rumored to be even stealthier and considerably faster, and considerably longer range than the F22 but alas Northrop was snubbed because of pentagon politics. The majority of aerospace experts believe the YF23 was indeed the greater jet by a wide margin.

  15. The real problem with Lockheed Martin is that more and more of the countries wouldve bought the F-35 are turning to try and buy the cheaper and better Russian SU-57 that is hurting both Lockheed Martin and the US reputation

  16. U don't see mainstream media askinwhere is the money coming or who is going to pay but for jobs creation, solar power, health care, affordable living or any other program that will benefit the country they go crazy saying there is no money and they don't know where they are going to get it…

  17. Instead of fearing about the terrorist group, and Iraq, the U.S citizen should fear with their government and also the military industries behind it.

  18. The U.S. gov pays Lockheed Martin billions while the China pays nothing and gets the same plans from their citizens working in Lockheed. Go figure

  19. "Congress is paying for Lockheed so that they can defend the country at home and abroad?" You mean to say that those soldiers are defending the US while standing in Afghanistan? Stupid dumbshit american propaganda

  20. This may not be good for our country if undue influence is produced. The one undue influence that is killing our sense of fairness and ability to get to the truth is our Media – Entertainment complex. Fake news is real and prevalent. There is more false news than truth on today's left controlled media.

  21. Trouble is most defense equipment never gets used, its billions of $$$ on the parking lot, equipment is built at extreme cost but can be made obsolete in a day when some other more advance piece comes along which renders it useless, it must cost more than a million dollars per dead terrorist, Australia has no nuclear weapons and we are still here, if that money was spent on wiser ways so we all get along and have no need for war but companies won't make money so its back to making war again.

  22. BAE systems is the largest non American supplier and Britains biggest arms company you imagine the Uks space industry and the new space force. It's our economy, our cooperation but Americas needs.

  23. Unacknowledged Special Accesss Programs: Lockheed Martin is running a Reverse Engineering Program for Spacecraft/Flying Disks that have been recovered from both crashes and ‘archaelogical digs’ (possibly even an exchange in technology with the developers of these spacecraft) these spacecraft use exotic propulsion systems not made from Earth and stated to not have been made from human hands. This program is why the government spends 3x to 10x more with respect to contracting Lockheed, and is also the reason why some of Lockheed’s contracts with the USG-Special Access Programs end up going 3x to 10x over budget. Its rumoured that up to 80% of the budget is estimated to be spent strictly on Security of the facilities and Security Access Controls (maintaining secrecy-vetting possible scientists/employees at the site ) for this program. To Lockheed Martin, the opportunity cost of security (keeping maintaining secrecy facilities employees etc) is Higher than the opportunity cost of the research and development being done in back-engineering the retrieved spacecraft. It’s more important for them to have information contained and for it not to leak out than it is for the actual progression of reverse engineering these spacecraft. However, that’s not to say theproject is at a stand still they have indeed progressed alot and are developing their own hybrid craft (been ~ 50+ years)

  24. Lockheed Martin the greatest builder, developer of Military hardware in the world! They rule thats why they get the big bucks !

  25. This is virtually a STATE OWNED ENTERPRISE with US character like Huawei, a privately owned enterprise, but supported and funded by China.
    What US does is legal and what China does is unfair.

  26. Have you ever thought that maybe Lockheed and Martin found a couple of devoted fathers and said if you don't suicide bomb this your family is dead, All for the sake of profit?

  27. The funniest thing I've heard from the alt right is how the Rothschild family supposedly run the world with their $250 bil net worth, US military industry-hold my beer…

  28. If yoy wanna have the upper hand in war you should spend money
    All people who say they are overpriced jets they should look at their capabilities
    You better read history to see when you spend a lot of money in the right way ,it gives you a huge chance to win the battle.

  29. While the company is another vile war profiteer, I will say the people working for them are really good folks. I work for a hotel in Fort Worth and we have a lot of employees from their Aeronautics headquarters stay with us regularly.

  30. Imagine what would happen if America suddenly didnt have any "enemies"? Maybe another 9/11 orchestrated by this industry

  31. It's because they have factories all over U.S and since congressmen don't want to see jobs closing in their states , they basically have political power in all the states

  32. Acquisition costs of Weapon-Systems are a FRACTION of the Pentagon annual budget.
    THE problem is some 90% (ninety percent) being stolen blindly.

  33. What a stupid choice of contracters.
    My aunt worked there for years, constructing DC10s. Since she knew how they ordered to short construction parts she would never fly.
    I remember her telling me to watch them, that they would be the safest planes in the air until the 1990s, then they would begin falling to pieces, which is exactly what happened.

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